Problems and improvement of the fund management structure in the private equity fund crisis

Abstract

Lime Asset Management Co. Ltd., Optimus Asset Management Co. Ltd., and Discovery Asset Management Co., Ltd. are the main asset managers in the so-called private fund crisis. In this article, we look at common illegal acts in the fund management structure, and analyze the relationship between the structure and the illegal acts. The three asset management companies all had one thing in common: investment money reached the final investment target assets via a conduit functioning as a reservoir. Plus, all three asset management companies have either finalized sentence or are in the criminal process on fraud due to Ponzi-Scheme, and have received administrative sanctions or are suspected of violating the Public offering regulations. It is analyzed that the reason for such a common phenomenon is that the conduit functioning as a reservoir can play a key role in helping fraud and violation of the public offering regulation. In addition, in the Optimus case, a criminal trial is underway as it is suspected that the Ponzi scheme was caused by the integrated management of trustee accounts, and Discovery is suspected of reducing investors' access to information by using an additional conduit. In this article, I would like to suggest three specific ways to improve these problems. The first is to establish a new regulation that shall be deemed to a public offering when debt securities issued by the same issuer are invested in two or more funds and to amend the regulations to include detailed information on conduit in the registration statement. The second is to put a provision to clarify the meaning of separate management obligations in the key specifications. Thirdly, if the fund uses a conduit, it is to limit the establishment of the fund through a self-regulatory organization, and if a fund is established, strengthen the description of the conduit.